Forced to outsource business, what happened to Chinese companies in India?

Forced to outsource business, what happened to Chinese companies in India?

"After Chinese companies refused to open up their supply chains and production activities to Indian companies, Chinese companies finally decided to outsource their manufacturing operations to Indian companies. The Times of India reported on the 21st that this is the result of the Indian government's continuous promotion and is seen as a "huge victory" for local manufacturers. So, is outsourcing manufacturing operations a voluntary choice for Chinese enterprises? What role does the Indian government play in this? What is the current state of operation of Chinese enterprises in India? The reporter of the "Global Times" interviewed some Chinese companies in India about this.

Choice or pressure?

According to the Times of India, most smartphone manufacturers in India are in dire need of manufacturing contracts after receiving incentives under the Production Linked Incentive Scheme (PLI). The PLI is a policy introduced by the Modi government to industrialize, expand exports and employment, and provide financial incentives to manufacturers in specific industries such as mobile phones and pharmaceuticals.

Indian electronics makers Dixon Technologies and Kabang are the leaders in securing new business from Chinese companies, the sources said. Dixon has secured a large order for mobile phone manufacturing from OPPO, a Chinese mobile phone company. One of OPPO's "original design manufacturers" (ODMs) orders orders for about 500,000-600,000 mobile phones per month with Dixon. Dixon also won a large order from Xiaomi to make smartphones. Another Indian electronics manufacturer, Optiemus, has also signed an exclusive partnership agreement with Xiaomi to produce audio products.

According to the report, the Indian government stepped in after discovering that Chinese companies, which have a large share of the Indian smartphone market, are not ready to open their supply chains to Indian companies. Samsung and Apple account for about 25% of India's smartphone market, with most of the rest being occupied by Chinese brands. "Because Samsung entered the Indian market earlier and produces and operates through its own factory. For enterprising Indian companies, the only way to do this is by partnering with Chinese brands. We hope that more Chinese companies will provide technology and production opportunities to Indian companies. A government official said.

In an interview with the Global Times, Long Xingchun, an expert on South Asia in China, said that if this is a business model chosen by enterprises, there is no problem. But at present, it is clear that this is due to the interference and pressure of the Indian government behind the scenes, and there is no legitimacy, which is what the Indian government has always done.

"Some of the largest Chinese mobile phone factories in India now don't have a single Chinese employee"

Taiwan's "Electronic Times" reported on the 20th that in recent years, as the Indian government has continuously strengthened the scrutiny of entities and citizens in Chinese mainland, Chinese investment in India has dropped sharply. Analysts say Chinese companies are under pressure from the Indian government to work with Indian companies that have applied for PLI.

After the Galwan Valley conflict in 2020, India has adopted a series of unfriendly policies towards Chinese companies in India, and since 2023, it has intensified its efforts to directly meddle in the operation of Chinese companies and force Chinese companies to outsource their manufacturing operations to Indian companies.

India's Economic Times reported in June last year that India's Ministry of Electronics and Information Technology held a meeting with a number of Chinese mobile phone companies operating in India, including Xiaomi, OPPO, vivo and others, and asked these companies to appoint Indian nationals to the positions of chief executive officer, chief operating officer, chief financial officer and chief technology officer of Indian subsidiaries or joint ventures.     The Indian government has also set strict rules for Chinese companies, including that Indian capital must hold more than 51% of the shares; Key positions such as CEO and CFO must be held by Indians, suppliers must be designated Indian companies, and distributors must be local Indian companies. According to some analysts, these regulations have made the situation of Chinese companies in the Indian market more difficult, and it can even be described as "a bamboo basket for nothing".

Forced to outsource business, what happened to Chinese companies in India?

On July 31, 2020 local time, in Mumbai, India, in a market, a pedestrian walked past a closed store, and the shutters were painted with advertisements for Chinese mobile phone manufacturer VIVO. (Photo source: Visual China)

India's Business Banner newspaper previously disclosed that the Modi government asked the industry last year to provide a list of Chinese suppliers who are willing to transfer production capacity to India and are willing to establish joint ventures with Indian companies. A person in charge of a Chinese company in India told the Global Times that he had seen the electronic version of the list with his own eyes.

The person in charge also said that the Indian government has long asked Chinese companies to outsource manufacturing operations to local companies, and they want to be deeply embedded in China's mobile phone industry chain. In some companies, Chinese employees are afraid to participate in production for fear of scrutiny. "Some companies have been forced to shut down for a year or two, and some have gone bankrupt altogether. There used to be a lot of Chinese mobile phone factories in the Noida industrial zone of Uttar Pradesh, but now more and more companies can't do it anymore. He also estimated that the amount of fines imposed on Chinese-funded panel companies amounted to hundreds of millions of yuan. The Global Times reporter also contacted the relevant officials of OPPO and Xiaomi India, but they did not accept interviews due to concerns about the sensitive topic.

Long Xingchun told the Global Times that many of Xiaomi's mobile phones in India are handed over to Indian factories to reduce risks in an asset-light way. Hiring and managing a large number of Indian workers is too cumbersome and risky. "Businesses are under the roof and sometimes have to bow their heads, and they can only make technical resistance by raising quality requirements and lowering prices. ”

The story of Chinese companies is not an isolated case

On the 22nd, Xie Chao, an associate researcher at the Center for South Asian Studies at Fudan University, told the Global Times that India's approach has the purpose of both trade protectionism and suppression of Chinese enterprises and investment. The Indian government has previously included technology transfer clauses in investment promotion, but it has been resisted by foreign companies. Now the Indian government has changed its approach to attracting foreign investment through the PLI program, which loses its negotiating power once it enters the Indian market, and the Indian government often pushes companies to introduce production processes and technologies into India through administrative means. At this time, these enterprises will fall into the situation of "artificial swords, I am fish and meat", if they do not cooperate with the Indian government, not only will the cultivated market be handed over, but the early investment will also be in vain. Some examples of companies have also shown that even in cooperation with the Indian government, profits earned are not repatriated to the country and are difficult to use for international investment.

The experience of Chinese companies is not alone. Xie Chao reminded that the Indian government's operation of "killing pigs" is also worthy of vigilance for other multinational companies. Other countries with close ties to India may also be targeted for repression at any time if they fail to cooperate with the Indian government in certain areas.

A person in charge of a Chinese-funded packaging company told the Global Times that his company has also experienced various difficulties from the Indian side, but due to its small scale and small attention, it can basically maintain normal operations at present, but now the operation of the enterprise is in charge of the Indians. He said, "India has too much sense of self-protection, and should look at China with an open eye, should not use political means to intervene in the market, and should let the two markets, with a population of nearly 3 billion, support each other and travel freely." ”

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